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What is Financial Spread Betting?

Financial Spread Betting is an alternative to CFD trading that gives clients from the UK and Ireland
the ability to place bets on the price movements of over 1,000 financial markets, including
currencies, precious metals, shares, stock indices, commodities and more.

How does Spread Betting work?

With financial Spread Betting, you are actually betting on the performance of a certain asset and speculating on the upward or downward movements in the price of that asset. And because Spread Betting is a leveraged product, which means that you can enter the market with only a fraction of the actual capital needed, you can use spread bets to speculate on the future movement of market prices, regardless of whether they are rising or falling.

Long and short positions

Financial Spread Betting allows you to profit from both rising and falling markets. You buy (open a long position) if
you think prices will rise, or sell (open a short position) if you think prices will fall.

What is Margin (or Leverage)?

What is Hedging in Spread Betting?

Hedging can be described as insuring your investment against a possible negative event in the future.
It doesn’t prevent the event from occurring, but rather aims to reduce its negative impact by
reducing your exposure to risk.

Spread Betting costs

A major advantage of financial Spread Betting is the lower costs, as opposed to traditional share trading.
Not only are spread bets traded on margin, thus requiring a fraction of the full cost to open a position, but
also the minimum amount to place a bet is £1.

Dividends in Spread Betting

Although you are not actually purchasing the actual shares, indices or ETFs, when the issuer company
(or the ETF in which a company is included) announces payment of dividends, this will be reflected in
your account as a dividend-equivalent payment.

What is Financial Spread Betting

Financial Spread Betting is an alternative to CFD trading that gives clients from the UK and Ireland
the ability to place bets on the price movements of over 1,000 financial markets, including
currencies, precious metals, shares, stock indices, commodities and more.

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How does Spread Betting work

With financial Spread Betting, you are actually betting on the performance of a certain asset and
speculating on the upward or downward movements in the price of that asset.And because Spread
Betting is a leveraged product, which means that you can enter the market with only a fraction of the
actual capital needed, you can use spread bets to speculate on the future movement of market
prices, regardless of whether they are rising or falling.

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Long and short positions

Financial Spread Betting allows you to profit from both rising and falling markets. You buy (open a long position) if
you think prices will rise, or sell (open a short position) if you think prices will fall.

If you think that an asset will experience a loss in value, you can use a spread bet to sell it. So your profits
will rise in line with any fall in that price of underlying asset. The more market prices move in the
direction you anticipated, the more profit you will make. The more they move in the opposite
direction, the greater your loss will be. So it’s you who decide how long to keep a position open.

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What is Margin (or Leverage)

One of the advantages of Spread Betting is that you can trade sums much larger than your
account equity. This is known as margin trading (also called leverage), which is the ability to control
more funds (borrowed from your broker) than the amount of your deposit, in order to increase the
potential return of an investment.

With a margin requirement of 5% (leverage of 1:20), for instance, you can trade with £10,000 by
having just £500 (5% margin) in your account. This means that you can take advantage of the
smallest market movements by controlling more money than you actually own.

While leverage can be advantageous in increasing your profits, it can also significantly increase your
losses, so it should be used with caution.

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What is Hedging in Spread Betting

Hedging can be described as insuring your investment against a possible negative event in the future.
It doesn’t prevent the event from occurring, but rather aims to reduce its negative impact by
reducing your exposure to risk.

If you believe your current portfolio may lose some of its value, you can use spread bets to compensate for
this loss by short selling.

For example, if you hold £10,000 worth of Barclays shares, you can short sell the equivalent of
£10,000 worth of these shares through a spread bet.

In case Barclays share price falls by 5%, the loss in value of your share portfolio would be
compensated by a gain in your short position.

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Spread Betting costs

A major advantage of financial Spread Betting is the lower costs, as opposed to traditional share trading.

Not only are spread bets traded on margin, thus requiring a fraction of the full cost to open a position, but
also the minimum amount to place a bet is £1.

DF Markets imposes no minimum requirements for opening a spread betting account. In fact, you can start
trading with whatever amount you feel comfortable with. This way, you can test your trading
strategies without the need to invest a large amount of money. In any case, your funds are protected
according to the rules imposed by the Financial Services Compensation Scheme (FSCS) - up to
£50,000. DF Markets participates in this fund in order to ensure the maximum protection of clients’
money.

There are no commission charges on any financial instrument that DF Markets offers for spread betting

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Rollover and Interest in Spread Betting

Placing financial spread bets on margin involves another typical cost: paying interest when you leave your position
open at the end of the trading day (also known as a rollover fee). The amount of this cost is
determined mainly by the prime interest rate of the country in whose currency the base asset is
denominated, plus/minus the premium/financing determined by the broker. Thus, it is possible that
in some cases you will receive interest for open positions, rather than pay it.

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Dividends in Spread Betting

Although you are not actually purchasing the actual shares, indices or ETFs, when the issuer company
(or the ETF in which a company is included) announces payment of dividends, this will be reflected in
your account as a dividend-equivalent payment. If you are holding a long position, your broker will pay you a
dividend, while if you are holding a short position, the amount of the dividend will be withheld from
your account.

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What is Forex

The foreign exchange market, also known as the Forex, or FX market, is by far the largest financial
market in the world. To put things in perspective, it is more than 50 times larger than the New York
Stock Exchange, with a daily turnover of more than $6 trillion.

The US dollar is by far the most traded currency in the world – with almost 85% of all reported
transactions. The euro comes next, followed by the yen, and then the British pound. For this reason
the rates of all currencies against the dollar are referred to as major rates (USD/JPY) and the rest are
cross rates (e.g. EUR/JPY).

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What is traded on the Forex market

The answer is money. It is exchanged among large central banks and organisations, investment
companies and individual traders.

Actually, you have probably participated in Forex trading without even knowing it. Every time you
take a trip to another county and exchange money, you contribute to that $6 trillion daily trade
volume.

When taking a trip to the US, you would convert your home currency into US dollars. This would
effectively mean that you are buying dollars and, basically, a share in the US economy.

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How is Forex traded

Forex exchange traders would typically look at the currencies available and buy the strongest one
while selling the weakest. So, for example, if after reading the news, you thought the euro was strong
and the US dollar was weak, you could buy the euro while selling the dollar.

Because you are comparing one currency to another, Forex is always quoted in pairs. Therefore, an
example of a EUR/USD quote would be 1.1150. This means that 1 euro is worth 1.1150 US dollars at
that moment in time. If this rate fell to 1.0922, then this would mean the euro is getting weaker and
the US dollar is getting stronger.

Within a Forex pair, the first currency called the base currency and the second one, the quote
currency. When you buy or sell a currency pair, you are actually buying or selling the base currency
for a certain amount of the quote currency.

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What is a Pip in Forex trading

Stock indices have "points", however Forex currency pairs have pips, and are usually quoted to the
fourth digit after the decimal point.

A change in the value of a currency pair by 0.0001 (and respectively 0.01 for currency pairs including
the JPY) is a 1 pip of movement. For example, if the GBP/USD was to move in price from 1.6339 to
1.6340, this would be a movement by 1 pip, and if it moved from 1.2639 to 1.2629, then this would
be a movement of 10 pips.

The monetary value of one pip can vary according to the size of your trade and the base currency you
are trading in.

Fractional pips: 5-Digit quotes

Some brokers, including DF Markets, use fractional pips to enhance precision in pricing and give
traders more freedom, as prices can be further broken down. A fractional pip is equal to 1/10th of a
pip and is represented by an additional 5th digit after the decimal point – e.g. EUR/USD 1.12347.

Respectively, JPY crosses are quoted to the third digit, instead of the second one.

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A brief history of currency trading

The introduction of the gold standard monetary system in 1875 is probably the most significant event
in the history of the currency markets. When countries fixed the price of their currency in terms of
specified amount of gold (measured in troy ounces), the change of its value (price) compared to
another currency became the first standardised means of currency trading in history.

World War I brought with it the breakdown of the gold standard because the major European
powers did not have enough gold to exchange for all the money that their governments were
printing at the time in order to complete large military projects. The time between the two world
wars saw the gold standard being used again, but by the start of World War II, most countries had
again dropped it. However gold never lost its spot as the ultimate form of monetary value.

In 1944 the Bretton Woods System was introduced. It led to the formation of fixed exchange rates
that resulted in the US dollar replacing the gold standard as the primary reserve currency. This also
meant that the US dollar became the only currency that would be backed by gold. In 1971 the US
declared that it would no longer exchange gold for US dollars that were held in foreign reserves. This
marked the end of the Bretton Woods System.

The breakdown of the Bretton Woods System ultimately led to the global acceptance of floating
foreign exchange rates in 1976. This can be considered as the “birth” of foreign currency trading as
we know it today, although it did not become widely traded, especially electronically traded, until the
late 1990’s.

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What can I spread bet on with DF Markets

DF Markets offers trading in over 1,000 markets: 68 currency pairs, Gold and Silver, Shares,
Indices, ETFs; Energy, Commodity and Financial Futures – at excellent trading conditions such as 0.6
target spread on EUR/USD and £0.25 on the US500 index, with fast order execution and extended
hours trading on more than 50 popular markets.

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What platform does DF Markets offer for Spread Betting

DFTrader is a state-of-the-art spread betting platform available in desktop, web and mobile versions. It
allows you to place bets on Forex, Precious Metals, Shares, Indices, Futures, ETFs and more than
1,000 other markets whether you’re in front of your computer or on the go.

Use the built-in economic calendar, real-time news feed and accurate live quotes to identify a
trading opportunity before you place an order.

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What order types can I place on the DFTrader platform?

You can place Market, Limit, Stop (incl. Trailing Stop) and OCO (One Cancels the Other) orders, which
are sent for execution at price levels determined by you, or build an intricate Conditional orders tree
according to your trading strategy.

What is the minimum stake at DF Markets

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Margin call; or why your positions may be closed due to insufficient margin

Failure to maintain the minimum margin requirements for your open positions will lead to the
automatic closing of some or all of them.

A shortage of funds will be indicated by the Free Margin field changing to red, which will mean that
the available free equity in your account has fallen below a certain threshold (calculated by the
chosen margin level and traded financial instruments).

You must also monitor the percentage value displayed in that field, as it gives you the ratio of free
margin to the used margin. A negative value, naturally, would mean that you have a deficit in your
current account balance (funds available).

If you have open positions and your current account balance falls below 1% of the required margin
amount, DF Markets shall send an email to inform you that your account is in margin call. In this case,
you should reduce your margin requirement (by closing all/some of your open positions or adding
further funds to your account), and DF Markets will cease the opening of new trades until the
required free margin level is reached.

If the deficit in your account balance reaches and/or exceeds 35% of the margin requirement, DF
Markets will automatically close all or part of the open positions at the current market prices.

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Fundamental market analysis

Fundamental analysis of the market involves analysing economic, social, political and other factors
that affect the value of financial assets such as currencies, company shares, stock indices etc. - so it is
a good indicator of whether the asset is undervalued or overvalued.

Generally, analysts use historical and present data to evaluate an asset and speculate on its future
price movements. For instance, one can perform fundamental analysis on a stock index’s value by
considering factors such as a country’s interest rates, employment, inflation or the state of the
economy as a whole. Speeches and announcements by prominent politicians and industry
professionals like the Chairman of the US Federal Reserve Bank (USA's central bank) are also likely to
cause market movements.

Keep in mind, however, that by focusing on a few isolated statistics, without placing them into a
proper context and without understanding the workings of the economy as a whole, you are simply
not getting the big picture.

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Technical market analysis

Technical analysis looks at historical price charts of currency pairs or financial assets and the trends
that occur within these charts.

The charting package in DF Markets' platform allows you to consider large volumes of past
data for trends and patterns in order to find profitable trading opportunities.

You can take a look at historical price movements and try to determine future price movements,
acting upon the assumption that history tends to repeat itself. These speculations, however, are
often self-fulfilling, as more and more traders look for certain price levels and chart patterns, and this
in turn causes these patterns to manifest themselves in the markets.

There are many types of charts, but the most frequently used in market analyses are Line charts and
Candlestick charts.

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Line charts

A line chart simply plots the closing points at selected intervals with a line drawn to connect the
points. So for example, a five minute line chart will put a plot every five minutes and connect all the
plot points.

Now if the interval was changed to a longer period, say one day, the line chart would plot the daily
closing points of a financial asset. This then provides a longer term view of how an asset has traded.

While the line chart only provides the closing points within selected intervals, the candlestick chart
provides a lot more information.

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Candlestick charts

A candlestick chart is made up of separate blocks, or candles. Each block (the body of the candle)
represents a time interval, e.g. 5 minutes, 1 hour, 1 day, 1 year, etc.

If the closing price is higher than the opening price, within the selected time interval, then the block's
colour is green (or blue); otherwise it's red. The thin line coming out of the top of each block
indicates the highest price of the time period, while the line coming out of the bottom indicates the
lowest price of the time period. These thin lines are called shadows, or tails.

Learn

Company

DF Markets is a trading name of Delta Financial Markets Limited, which is authorised and regulated by the Financial Conduct Authority, Financial Services Register Number 534027. Registered in England & Wales, company number 07280005.

The information on this website is not directed at, or intended for distribution to, residents of the USA, Belgium or any other jurisdiction where such distribution, availability or use would be contrary to applicable law or regulation.

Financial Spread Bets are complex instruments and come with a high risk of losing money rapidly due to leverage.88% of retail Spread Betting accounts lose money with this provider.
You should consider whether you understand how Spread Bets work and whether you can afford to take the high risk of losing your money.